Matching capital with ‘space’ in unlocking the microinsurance potential

As Nigeria prepares to unlock its microinsurance potential given the country’s huge population of 170 million people and a demographic structure leaning towards the mass poor, the need to open up the sector for mass participation of several service providers has been advocated.

Consequently, achieving this will require streamlining the minimum capital requirement (MCR) to accommodate both big and small players for different levels of participation in the entire microinsurance value chain.

Though the insurance regulator, the National Insurance Commission (NAICOM), had requested a minimum capital requirement of N350m for microinsurance license in its guideline released December 2013, analysts say this is on the high side and has not attracted the class of operators that have interest in that area of business.

Yemi Soladoye, managing director/CEO, Riskguard-Africa (NIG) Limited, said at a presentation in Lagos that if the national goal is to achieve at least 774 micro insurance offices, say in each local government in the next five years (2012), a minimum capital requirement of N350m would be too high.

“To ensure spread and impact, lower Minimum Capital Requirement (MCR) must be indicated for those who want to operate on Regional, State, LG and Unit basis. Stand alone operators with small capital, lean structure, simple and bundled products, easy claims procedures will be necessary.

Soladoye, still querying the suitability of the MCR, asks: “How many offices does the regulator expect an operator to open with N350m? Are we expecting Ajose Adeogun Microinsurance Companies?; Prado Jeep and Ipad MDs; Is Microinsurance going to be the landing pad, for weak commercial underwriters?

“We suggest the use of 5-tier operational model based on capital requirement to secure widest coverage of Microinsurance in Nigeria this should include National- N350 million; Regional N90 million; State N40m; Local governments N10m; and Unit N5m.

According to Soladoye, the unit and regional approach will reduce cost of doing business, stating that lean structure, modest office and appropriate location must all be specified per unit of office outlet by the regulator.

Soladoye noted further that since the existing insurance operators do not need any new capital requirement to operate microinsurance, it is suggested that the Indian model of forced-familiarity and the China model of conditional expansion must be explored.

“Any foreign player seeking entry into the Nigerian market must be given a mandate on the number and percentage of microinsurance policies that must form its portfolio over a period of time. The same should apply to the existing underwriters. The first set of Mi operators could be generated from the small-sized Insurance brokers, weak micro finance banks (MFBs); and experienced Agents of the existing underwriters.”

This approach, Soladoye pointed out, would make room for consolidation and appropriate learning time, putting in place the necessary strategies, goals and regulatory frameworks. More so, the immediate past minister of finance publicly announced that no new licenses would be granted for insurance underwriting.

Emphasising the need to expand the scope of service delivery partners, Soladoye notes that with only seven commercial underwriters providing microinsurance products in Nigeria as at the end of February 2014 while 6 new applications are said to have been received by NAICOM from intending stand alone operators, the regulators will have to recognise other non-tradition operators at least as distribution channels if it truly wants to provide access to Microinsurance in Nigeria. Prerogative

Among the groups are the multi-purpose cooperative societies cutting across Nigeria and have about 3m members; the microfinance banks which have wider and grass-root spread numbering about 871 banks, over 20m depositors, aggregate loan of over N70bn and aggregate deposit of over N1trn; faith-based organisation (FBOs) – both Islam and Christianity, which is a rallying point for low-income people in Nigeria.

Other groups are the mutual and community based organisation (MCBOs) involving member-owned and member-managed organisation usually run by non-professional voluntary staff in a small geographic community; non-governmental organisations (NGOs) which tend to focus primarily on the low-income groups and they are not primarily driven by profit.

Also included are the governments and MDAs; the Federal Ministry of Agriculture; the NHIS; civil society organisations (CSO); the Insurance Providers particularly the Insurance brokers; the telcos and utilities.

Modestus  Anaesoronye